they are scheduled e-mail directly to you. >> on his last day on the job, the inspector of tarp give his assessment on the 2008 program to stabilize financial markets. he said the program has encouraged large firms to become even bigger and that the government has not seceded in helping struggling homeowners. the house oversight committee also heard a defense of the tarp program from the treasury assistant secretary for financial stability. this is two hours and 20 minutes.

[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> thank you for the opportunity to appear before you today. it is a pleasure and an honored to appear before the subcommittee on my final day as special inspector general. it is hard to believe that two and a half years ago there was assisting a star, certainly no such thing as a tarp subcommittee. after an outpouring than doubling of government funds to a financial industry that was teetering on the brink of collapse, accompanied by historic riverside, emergency economic stabilization act, which greeted tart, also created sig tarp. i am proud to say that, since our inception in 2008, we have made progress in fulfilling the

goals set before us by congress. we should 9 quarterly report, 13 audits, secured civil or criminal charges against more than 50 individuals, 18 different defendants have been convicted of tarp-related fraud, and our investigations have helped assist in the recovery of or the prevention to loss in a some of $70 million. as importantly -- of $17 million. as importantly, we brought in to retool a program desperately in need of it. tarp made promises to both wall street and to ministry. i'm fortunate, its track record has been mixed. it fulfil this -- unfortunately, its track record has been mixed. it fulfilled its promise to wall street, but it has failed to live up to its promises to main street.

when treasury give out billions the -- billions of dollars to banks, it did so without policy in place to accomplish that goal, without any strings to require lending or provide incentives for it. not surprisingly, credit continued to contract throughout the financial crisis and well into the recovery. second, the promise to preserve home ownership, such an important part of the legislative are in the treasury struck with congress in order to get top past lies in tatters. the original promise to modify up to $700 billion in mortgages that treasury was to purchase under tarp was cast aside within weeks. it was replaced months later with the promise by this administration to modify 4 million mortgages for struggling

homeowners. that promise has, too, been cast aside. the cold start reality of a failed program that was poorly designed, poorly managed, poorly executed, and will come nowhere close to coming to the original promise. after secretary paulson and then secretary geithner told the world that they would stand by and not let our largest banks fail, and demonstrated that they were ready, willing to enable to use the term funds to accomplish that, we were left with the financial system -- the tarp funds to accomplish the, we were left with the financial system that was more dangerous than the ones that created the crisis. it is a promise that looks like it, too, will go unmet. notwithstanding the passage of frank, there's still the

perception that the government will bail out large banks. should the hit the rocks again, the united states government will come to their rescue. it still remains theoretically possible that it will address of too-big-to-fail. treasury and the regulators would get into broad powers and authorities to take on the largest banks. these are the same regulators whose incompetence and lack of foresight was prescribed by the financial -- described by the financial regulatory committee as the reason for the crisis. without dramatic and quick action, i am afraid that this promise, too, will be broken

with potentially devastating consequences. i think you for the opportunity to be here today. i also want to thank you and the chairman of the full committee for your strong support over the years. we would not have been able to accomplish in nearly any of our goals or our accomplishments if it were not for the strong continues and, above all, bipartisan support from congress. if we received only support from one side or the other, it would not have had nearly the impact that your uniform support has been for our office. i think you. i also want to thank the incredible men and women who worked at tarp for their sacrifices, their commitment, and they demonstrate all the good that is in federal workers. it has been my privilege and honor to work with them for the last two years plus. a look forward to answering any questions you may have. -- i look forward to entering

any questions you may have. >> thank you. you have mentioned in your report, in your editorial today in "the new york times" that the objectives of tarp had been shifted dramatically in two and a half years since the creation of the program. it is now evolving, but it seems like, if they fail to meet metrics set for themselves, they change the metrics. can you elaborate on this? >> it happened far too often with this program that, when a goal was not met, rather than do what you would expect in a good government program, which is that you have a goal and doucette policy to achieve that goal, measure performance against that goal, and if you are not performing, you change the program, make the necessary changes to accomplish that goal. far too often, in tar, and it has been to set a goal, treat no

policy to achieve that goal, basically ignored, try not to be transparent about the progress toward that goal. when you do not meet that goal, changeable and then declare mission accomplished and move on. -- changed that the goal and then declare mission accomplished and move on. it happened with a lot of the main street goals which have been written out. recently, a treasury official talked about these incredibly important mean streak goals that were part of the bargain, for white tarp got past, and dismissed them as window dressing. they were intended to be more than that. those are some of the broken promises i discussed in the op ed and in our reports. >> to go further on this, there has been a discussion in recent days that part has been a success for the taxpayers. in dollars and cents terms, it has not been a huge negative.

what is the legacy of tarp and this unprecedented intervention in the market? >> there is a number of areas where tarp fell short of course, there are the goals that were not met. there is a cost to not meeting your main street bulls. one of them is in the impact of government credibility. the bottom line is that the people do not trust their government could part of the reason is tha -- government. part of the reason is because they do not meet their goals. gradus legacies is the failure to deal with -- greatest legacy is the failure to deal with too-big-to-fail. it exacerbated the problem of too-big-to-fail. it was no longer as explicit as

it could be. the whole reason why tarp contribute to avoiding the economic collapse was because of the promise that we would not let these institutions fail. that has had the unintended consequences of the problem of getting bigger and bigger, more concentrated. you mentioned the statistical data that backs up what we all know, that they're able to borrow money more cheaply, able to access the credit markets, access capital markets, and they are more systemic the significant than they were before, if for no other reason that there are fewer of them and they are bigger than ever. >> dodd-frank prevented that from happening? >> it was not a magic wanted it did not actually change the status quo. it gave one possible path of the deregulators could choose to use to potentially accomplish that goal, but the bill itself is just that, a bill. unfortunately, based on the market's perception, they are

very much and convinced that it will be used in the effective way that it would need to be used in order to really address too-big-to-fail. >> even in the design of the bill, does it leave wide openings for bailouts to continue? >> technically, under the letter of the law -- and there is some dispute about what the meaning of all this is -- in certain language, bailout will not happen. but that sort of ignores reality. the reality is that, when we talk about too-big-to-fail, far too often we lose sight of the fact of what those words mean. it means really what they say. whether there is a law in the books or not, if we had a repeat of the financial crisis, it will not matter what the law in the books is because its failure is not an option. you cannot let those banks fail if that happens. it does not matter what your political or personal ideology is.

the country will go down. there will be a systemic crash. there will be devastating consequences. the point is that, much like the tarp, whoever happens to be president at the time and controlling congress at that time, for the best of the country, has to go in and rescue the banks. it is not a moral question. that is what too-big-to-fail means. certain transportation's of the bill gives certain degree of discretion as to which -- certain portions of the build a certain degree of discretion as to dollars and something you can point to that does not mean an orderly bankruptcy and can continue in the form of a bailout, whether funded by the industry or elsewhere, if you have a to-be-to-filled eyes, we will be right back where we were in 2008 -- too big -- too-

big-to-fail crisis, we will be back where we startewere in 200. unless and until they use those the 40's, we are worse than the status quo. -- the use those -- use those authorities, we are worse than the status quo. the market is looking at dodd- frank and they are rejecting it. it increases capital requirements. the volcker rule, although a lot of exceptions have been made to defeated, these are all hopeful in certain areas of potential risk. but the big ticket question we're talking about it, does it solve too-big-to-fail? the answer is not yet.

in terms of what the direction has been, i am not entirely optimistic that it will. >> thank you. we recognize mr. quigley. >> thank you, mr. chairman. it is not that i disagree with you on the point. but i want to understand better. you advocating your testimony today and in your editorial, discussing the recommendation to supply our strength, -- to simplify or make smaller. the risk-taking will shift elsewhere in the system were is harder to regulate.

think hedge funds. what is your response to that? >> that sounds like an embracing a too-big-to-fail. >> i do not think he is correct. >> this is similar to a different argument. our largest banks are not of the size and scope that they are. they will not able to compete with larger european banks. if we break that down, what it really means is that, ok, so other countries guarantee their banks and those banks haven't advantage. unless we guarantee our banks, our banks will not able to compete with those other banks. that is essentially what it comes down to. so the question becomes are you willing to believe that the government should subsidize and guarantee financial institutions or do you believe that we should be true to our capitals ideals and let these banks compete without an economic subsidy, a very significant subsidy that

they receive? sure, there are a number of doomsday scenarios that one could posit, that if we actually use the tools of dodd-frank and we were true to the idea of ending too-big-to-fill, it may result in banks that are not as profitable as they are today. >> but there are instances in which unfair trade practices, for example, by other countries do put our capitalistic ideals at risk. you do not see that as a possibility in the banking industry? >> i think is a possibility, but there are other ways to deal with those policy concerns rather than embracing the idea that we should be effectively granting our largest banks a subsidy. and essentially putting them on the books. there's very little difference when you compare where we were in the lead up to the financial crisis with fannie mae and freddie marked -- and freddie mac than where we are right now. is an explicit guarantee. it creates distortions on the

market. in many ways, we could end up in that same exact situation. sure, the banks can reach short- term profits because they can compete with other banks that have subsidies. but i will take the other side. if we remove these subsidies, if we remove the implicit guarantee overtime, we will have a healthier and better banking system. this is what chairman ben bernanke said recently. this is what larry summers said recently. >> how do you protect our banks in the meantime from unfair practices or unfair competition as it might exist? >> there is constant interaction. >> i do not think that you have to like to-be-to-fail or embrace it to be concerned about that potential risk, right? >> right. but there are whole of this is dedicated to dealing with foreign offices and foreign regulators through the g-20. that is the right place to do

with them and not throwing your hands up and say that we will subsidize our largest banks and take money out of one pockets and bridget one pocket and put it into the pockets of the shareholders. that is what is happening. $34 billion was one of the dollar subsidies that we give to our largest banks as an implicit guarantee. i say take the money and put it elsewhere. i think we will be better off. >> i appreciate that. i guess the second point is that what is implied here that encourages banks to engage in risky behavior, can you detail the risky behavior you see today? >> sure. the idea of risky behavior is that banks -- anybody who has a bank, especially when they are large, interconnected in simi buses, they will make decisions on how to invest their money, how they manage their portfolio, and the question is on the level of risk they will attach to each of those decisions. the problem with too-big-to-fail

is that it impacts of that decision-making process. senator kaufman, when he was the chair of the congressional oversight panel, described it as being the rational decision of an executive when you take out the -- and what to big to fail does is take the bottom of that because it is the rational assumption that, if the risk does not work out, you will not have negative consequences of that risk. that is what happens with too- big-to-fail to and you actually rationalize risky behavior because it is in the dusty -- best interest of the bank and the shareholders and executives. >> thank you. >> mr. man for five minutes. >> thank you, mr. chairman. orofsky formr. brodsk

looking at this issue in such a scope, a tremendous challenge to our country when it happened, but the health the capacity to then look back at what happened and as the kinds of difficult questions that allow us to consider the implications of all that happened so quickly with such remarkable significance at the height of the challenge to our financial system. i appreciate your service to our country and thank you for your contribution. i know that you would say as well that that is something that has been a great part -- a great part has been the work that you have done. i want to compliment the people that work with you.

you study this. you spent time really looking at the big picture and had the chance to sit back, maybe more than many of the people here in congress have. and you made a comment. unless there is dramatic and quick action, we will head down a path. that is a very disconcerting observation. what do you mean by dramatic and quick action? what you think we need to be doing here in congress to protect against the kind of concern that you have identified in your testimony? >> first of all, thank you for your kind comments. it is certainly true -- i am the one that is to set the table and take the credit for our successes and plan for our failures, but it does not happen without the people that are banned senior staff. we have all benefited.

what i was referring to is that i think we have to stay here within the realm of the possible. i could go back and said that there are certain things that could have been done with dodd- frank that could have made this a better protecting against too- big-to-fail. but in the realm of where we are today, there is a path that has a better chance than most of succeeding and that is the one that is being advocated by sheila bair, the outgoing chair of the fdic. it is not a very dramatic departure. it is just fulfilling the mandate of dodd-frank. what she has said is that part of the proposal is the living will where the banks are required to come up with a plan for how they will be resolved in the event of a financial crisis. and she cannot was say it -- with something, saying it over

and over again, which does not seem to be very controversial. in order for us to carry out the mandate of dodd-frank, in order for us to really address today to -- address to-big-to-fail, they need to be resolved in a meaningful way and we need to use the powers of dodd-frank to simplify and shrink those institutions. what is remarkable about this is the deafening silence with which it has been met by the other regulators, the other members of the financial stability oversight panel, including secretary treasury timothy geithner. ultimately, they are too complex. they are too large. i think that chairman greenspan, famously at the beginning of this crisis, said that too-big- to-fail means too big.

it is not just too big. it is a good place to start. it really does appear that what is happening with the chairwoman suggestion is a regulatory game of running up the clock. they say nothing. they do nothing. and the bottom line is that she will not able to institute those changes before she steps down during the course of the summer. those plans will not be coming in a manner of six months. it could be a year before anything happens. so what would be an example of dramatic change? how about a strong endorsement from the secretary of the treasury, from the chairman of the federal reserve and others that chairman sheila bair's suggestion will be adopted? perhaps this could help to away at the market's perception that resolution authority is somewhat of a joke. if you look at the language that moody's used at rejecting the idea that dodd-frank would work or somehow and too-big-to-fail,

that this resolution of party is going to work, it is striking language. it is not just a passive projection. it is a complete rejection. >> moody's has included in their analysis the idea that the government is actually going to bail out the banks. this is part of the problem we're looking at. >> absolutely. there -- that this is going to happen. it is a it -- they reject that this is going to happen. it is a minor first step. but instead of issuing what is basically empty statements that this will and too-big-to-fail as we know it and we will never have to bailout anybody else again and there are provisions in law that i have heard that says there will never be a bailout, let's start with unarticulated plan similar to the one advocated by chairwoman sheila bair that says, ok, this is how we will do this. we will simplify and shrink

these institutions so we can have a credible response to the markets that we will not bail them out. right now, the empty rhetoric, the market is not buying it. you can actually measure whether or not your statements are effective or not. all you have to do is look at what the credit rating agencies say, look at how much cheaper the benefit is, how much cheaper it is for the banks to raise capital. there things you can actually look to. while it is unfortunate that credit rating agencies have so much power and influence, that is the sad reality of where we are today. i think there has to be -- it has to start with an increase in rhetoric and then it has to be backed up by demonstrated action to fulfil those rhetorical promises. right now, we do not have any of that. what we have is a lot of discussion about endless roll- making that will accomplish some goal, a real sense of incrementalism.

we will do a little bit here and a little bit there. i personally believe that chairman sheila bair's approach is a better one. >> the gentleman's time has expired. >> thank you, mr. chairman. >> thank you so much. i could not help but think about the fact that, come june 25 in my district, 40 miles from here, people will march into a room, to a conference of the preventing foreclosure. they will march in with tears, literally, about 1000 of them. and they will face some very difficult situations. they will finally get a chance to sit down with some lenders and tried to come to some resolve with regard to modifications. many of them will be lied to. many of them have been lied to.

they have been playing games with them. a lot of these servicers, as if they were fools. when i read your editorial this morning, i was very impressed. we just voted yesterday to end the have program. i know how you feel about it. many of us feel the same way. but when you and the program and there is nothing to substitute, nothing, i am wondering if that is a good idea. i am just curious. >> as special inspector general, it has always been my position and continues to be my position that tarp made a promise. congressman, i don't to presume

anything about you or your decision to make your vote, but, for a lot of progress as that i have spoken to, members of congress, the reason why they voted for tarp, one of the really things that convinced them to vote for what is essentially a bank bailout was this promise to preserve home ownership. >> you are right. that is one of the reasons why i voted for it appeared >> this is part and parcel of tarp in my view as the need to save the financial system. i do not rank them. i put them side by side. it was just as important to do with home ownership and deal with the foreclosure crisis as it was to deal with the banks. i believe that then it is on par. i look at the disappointments, the broken promise of the hamp program.

i do agree with you that we cannot just abandon that goal of tarp. and also can defend, for those who voted for termination of -- i also cannot defend, for those who voted for termination of hamp, because they had the opportunity to make a difference. why has treasury not lived up to a different promise it made, the one it made in november 2009 to impose financial penalties on those servicers for not performing? why are we to use it to the program without a single financial penalty for performance? >> i need to get to one other thing. the reason why i started out the way i did, we can have all these discussions we want, but when i go back to my district and i know members on both sides of the aisle, when they go back to their districts, but some of

them may not see these folks. but there are a lot of americans suffering. if we basically cut the money for carrying out dodd-frank, do you have an opinion on that? because that is what is happening. >> i come from a law enforcement background. i spent eight years at the u.s. attorney's office. during budget freezes and hiring freezes, i think you for your generous support during this crisis for our resources. but those budget cuts and freezes have a direct impact on the ability of those offices to put people in jail, to lock people up, to hold people accountable. >> but does it also have an impact -- you said that you know how the market is viewing dodd- frank. he talked about the possibility that dodd-frank operates and

they look at it and say, you know what? we are not so worried about it because you said to-be-to-fail. but could it be that they see an effort to take the money from out of these agencies so they can properly enforce and carry out dodd-frank? >> it may be part of that perception issue. the bottom line is that the regulatory agencies that are charged with natalie implementing dodd-frank, but also law enforcement goals and enforcement goals -- i am thinking specifically of the sec -- when you take away funding, it may be that they will reallocate resources to dodd- frank. but as an agency, there will be able to accomplish less as far as enforcement is concerned and in implementing dodd-frank. i am not here to wade into the politics of a budget battle but

it is simple. i have seen it over and over again. when spending freezes hit, it has a direct impact on enforcement. that is a reality. >> "the wall street journal" article noted that the department's seem to be drafting bills to take apart this reform piece by piece. what do you think about the funding or dismantling dodd- frank and what it has on the perception of the markets? >> i am not sure the impact is, in part because of the political realities of a decisive government. i have not traced anything or seen anything or heard anything that directly links that. of course, if the agencies are cuts deeply to the bone that they are unable to implement for visions of regulatory

reform, that will have an impact. but i think the far greater impact, frankly, is the lack of political and regulatory will in staking out how they will use that authority since they have all the resources to really take on the issue of too-big-to-fail. unless we see that shift, i think that will have a far greater impact on market perceptions. >> i think the ranking member. >> thank you for being here this morning. i have one general question and i would like to just ask a couple of questions about some of the comments you have made already. would you agree that tarp picked winners, perhaps letting weaker entities survive. -- survive? if so, do you think that may have been a misallocation of

funds? >> when you look at tarp as a whole, the lack of transparency in the program has led to the very fair criticism that, at times, tarp may have picked winners and losers. generally speaking, when we talk about the different truck programs -- there are 13 different tarp subprograms. we often think of a tarp as a monolith. we think of it as a capital purchase program, which, by very domitian, picks winners and losers -- by very definition, picks winners and losers. but there was, in fact, a process in place that depended mostly on the banks'regulatory ratings. on certain occasions, we did audit work on this. certainly, there were winners

and losers picked. tarp did not have a perfect record. there have been a member banks that were supposedly healthy and viable that failed. there were others that were deemed healthy and viable and, a month later, needed to get a tremendous amount of additional support like bank of america and citigroup. i am understand that concern. on the flip side, it probably would have been inappropriate for tarp to give money to all institutions that came to the window. part of the importance of giving out text-- giving a tax payer money is to make sure that they were viable. based on our work and our reporting, it was incredibly difficult. there was a real sense of panic. they made some mistakes for sure, but i do not think they were intentional in anyway. they tried to get it right. they just did not sometimes.

>> i want to go back to a comment for when you were responding to our chairman. you mentioned that unless treasury and the regulators use their authorities -- you mentioned that some of the '30's they already have -- that we -- some of those authorities they already have -- we will experience the same or worse. can you explain the authorities you are referring to and if they exist prior to dodd-frank. >> caps all leverage, capital floors are examples of things that have been around for a while. i think that what dodd-frank does is that it really forces an entry point for using those types of mechanisms anticipatory. this gives us an entry to

evaluate the largest banks that were deemed systemically significant and evaluate whether or not it really could survive or whether the system could survive their failure. that is the key to any resolution plan, which is to take what ever it is, as chairman sheila bair suggest, and putting it through a reality check. if it does not meet the reality check using those tools, either spin off certain businesses, shrink the company, simplified organizational structure -- if you look at the lehman bankruptcy and the 3200 something different entities that were hopelessly complex and makes resolution difficult, i think that is a good start. of course, we have to remember that one of the limitations of waiting too long -- in other words, we do not use the authorities when we get the resolution plan prescriptive lead before the next financial

crisis -- even our best intentions may not really work. in an era of a financial crisis, that is when all these institutions are suffering similar threats at the same time. it will be very difficult to execute some of these resolution plans. how do sell-off a large business job as part of a resolution if there is no one to buy it because the other entities are going through the same stresses of the financial system collapse? i think that is what secretary geithner meant when he said to mus did dodd-frank help? we need to do exceptional things again because, even with the best intentions, the reality of that the shock to the system will require -- as long as the banks are too big, it will require, again, extraordinary intervention. >> thank you very much. >> mr. welch. five minutes.

>> thank you very much, mr. chairman. if i understand it, you say that dodd-frank has not succeeded in making the market believe that it has addressed this issue of too-big-to-fail. >> the implementation of it has not succeeded in convincing the market. >> is a because of the regulatory provisions -- is it because of the regulatory provisions? >> yes, some of that put the responsibility on the regulators to edelman the necessary changes and send the right messages to market. >> so we would have been better off with congress testifying what were the guidelines and what were the parameters within which these large financial institutions could operate? would that have been a better

approach? >> it would have been a more effective approach if ideas like the amendments in the senate to dog frank -- to dodd- frank would put such as caps on the larger institutions. if that had passed, it would have sent a clear message to the market. >> that is simple. >> you would have relied lot less on the regulators if that were included. >> when we get into the regulators, of course, having a budget challenge in this country and in this congress, if we are cutting the budget for, for instance, the sec by $25 million, how does that affect -- what kind of signal does that send and how does that affect the ability to actually supervised the regulations that would apply? >> according to the sec, it would have a very direct result.

it would inhibit their ability, according to chairman shapiro, of being able to implement the requirements that they need to do under dodd-frank. >> in your independent capacity, that offer makes sense to you? >> there is no question. when you are a regulatory agency, a law-enforcement agency, and you have fewer resources, you have to make cuts across the board. everything suppers. that will suffer. enforcement will suffer. >> the same thing with the consumer financial protection board. dodd-frank calls for an independent watchdog. that would be independent. it would not be advocating for the interest of the large financial institutions. it would be advocating for the interest of consumers. the sierra provision, the continuing resolution provision, which cut that down by 40%,

from $143 billion to $80 billion japan which have the same response to the budgetary cut -- $80 billion. would you have the same response to the budgetary cuts? >> having been fortunate enough to work with elizabeth warren as she was the chair of the congressional oversight panel, i would certainly take her at her word that this would impact the ability to go forward. press one of the points of this hearing is that there are some legit -- >> one of the points of this hearing is that there are some legitimate questions if tarp was working. it is not clear what the consensus would be on this committee and if we want to be tougher on the too-big-to-fail policy or not. that is not part of it. but let's assume that we did have a view that was shared across the aisle, on both sides, where we did want to protect the taxpayer from a future bailout.

what would do it -- what would be your recommendation for congress to do for protection against another bailout? >> step one is working within the tarbell that has already passed. that is to exert as much pressure as you can on the congressional oversight panel, on secretary geithner to fulfill the promise and to not take an approach and lookt at the recommendations of chairwoman sheila bear. getting rid of that subsidy, getting rid of the economic advantage that the bigger banks have over their smaller counterparts, whether it is the implicit guarantee, the increased credit rating, that has to be a goal. this is the remarkable thing

about too-big-to-fail. perception matters. perception is as important as anything else. it is unfortunate that the credit rating agencies still have some much influence over things. but that is reality. we have to take those perceptions head on. many to figure out how to use the tools we already have to do with that perception and not just, i am sorry, ignore the advocacy of chairman sheila bair and others who have strong ideas about trying to get this to a place where these banks no longer enjoy that subsidy. >> i would be happy to -- i thinwe to -- i think we agree that we want to and 2-big-to-fail. but i know that has been your advocacy in your time in congress as well as mine. the bill of goods that some of us saw coming out of dodd-frank is that it would prevent too- big-to-fail. >> i appreciate that. as the chairman knows, i voted

in significant part because of the testimony of mr. borofsky. in so much as we can find a way to work together, i agree with your statement. >> i thank the chairman for his advocacy. we do not always agree, but you have a great way of reaching out and try to find consensus. with that, i yield five minutes issa.nator eis >> thank you. if we can get to some bipartisan discussion where we agree to a number and say, if we need to add sec, or some of the websites and so on that are also being cut and back them up because

they save us money, then i think then we can find those offsets. i think that the chairmen agreed that hamp was an awful lot of money that was not meant to ruin people's credit rating. i am concerned about where we make the cuts. i would hope that, in the very near future, we talk about the need to make austerity moves and then begin to say where can we find multiple votes for something by putting things back. you mentioned the sec. i am concerned that many of the summit activities that we have on a bipartisan basis been investigating -- i think we need to have the access that, quite frankly, dodd-frank, with bipartisan support from this committee, almost got with

transparency. we still have to get back to getting that transparency into what was dodd-frank. if i could throw a slide up, i just want to go through a couple of these. it illustrates probably the most important point you are making today. it is the 2-3 step credit rating increase. go to the next slide. real examples -- wells fargo, if their cost of money is 4.81 vs -- if goldman sacks, often vilified here, but if their cost of money is just under 5% while national city is over 6%, that is not the three-quarters of a point you're talking about. barclays bank is that 4.39% vs. the tnt -- bb &t.

huntington national bank has 6.54%. let me ask it to you in a different way, as a former businessman. if i am among the most creditworthy companies, the fortune 500, down to small companies that simply have healthy balance sheets, is there any reason in the world that they will not migrate to the largest banks when the largest banks can make a profit of nearly a point cheaper than their competition? in the pure cost of money, will this not move the more creditworthy to the big banks while leaving little banks with higher rates and being forced to take what is ever left behind? >> absolutely. let's say your deposit money at one of these banks. you go beyond the fdic's limits. do you not want to have an implicit government guarantee

of too-big-to-fail behind your deposits? from an ethical and point of view, you may not want to support these institutions because of this implicit government guarantee. but, as a businessman, how can you not take advantage of the fact that you're getting what is essentially free deposit insurance based on the implicit guarantee that the government will bail them out? what does that do? it makes them bigger? it makes them even more systemically important. it is a downward spiral. and for the smaller banks, it gives them incentive as well bid we need to get bigger. we need to get on the gravy train. we need to raise money more cheaply because of the implicit guarantee. it is a complete perversion of the system. >> that brings up a point that i want to make sure the committee focuses on. if we do not change where we are today, the five banks that represent 50% will be seven banks that represent 80%.

through mergers, the banks will get these rates by being big enough to be not too-big-to- fail. that would be my approach to get my business away from the big 5. >> it is a real danger. there are some provisions in dodd-frank that prohibits concentration of 5% of all deposits. one of the things we talk about is lehman and was it not a good example of the government not stepping in? but so much of the incentive of allowing women to fill was a lesson that we need to get bigger than women because we need to make sure that we're big enough so that is a bigger than lehman because we need to make sure that we are be enough -- we need to get bigger than lehman because we need to make sure that we are big enough. >> thank you. >> is a pleasure to have you

here. when i was a kid growing up, i remember commercials -- in the avis commercial -- "we try harder because we're no. 2." all of a sudden, number one seems to be a guaranteed by the federal government. whoever is no. 2, good luck because you can try as hard as you want. with community banks, if we see what happens when you have seven banks taking 80% of the market, it seems to me that there is only an incentive for community banks to merge with or be acquired by the too-big-to-fail banks. is that the president we're setting up with a the tarp package? cedent we aree presiden setting up with the tarp package? >> certainly, consolidation and

consolidationlars could be a bar product -- continued consolidation to be a byproduct of where we are. >> the community banks to be serving most of our businesses in terms of loans. it could give them what i think would be an opportunity for the too-big-to-fail banks to dictate more policy and restrictions. >> less competition as never before the consumer. the notion of having more political power almost seems and have a look at this point, but it could have them. >> systemically, as a result of the tarp package, has been anything to change the way we do business to avoid ever having to have another tarp package passed by this congress? >> in many ways, the way it has been executed and the way it has

a legacy of increased moral hazard, it has made a lot even more likely. unless we deal with this too- big-to-fail problem, the increased size, the increase interconnectedness, the fewer number of large institutions, all contribute an elitist to where the too-big-to-fail this will be even bigger and their failure even less conceivable as possible. >> is it possible that the precedent set their that such tarp packages would be considered for non-financial institutions, insurance companies? we saw that with aig. this does not set a precedent that goes beyond assisting financial institutions and any entity that may be deemed too- big-to-fail regardless of what their commercial purposes. >> the tarp was not limited to

banks. you have to aig, the automobile industry -- that is part of tarp's legacy, the extending of moral hazard. >> in any of your class is, would you -- classes, would you consider changing your business plan to include a path to where you can now be required or be guaranteed by the federal government because of the precedent that has been said in the last couple of years? >> unless we make that so painful and really address it through our regulation, again, right now, it is a pretty good place to be to be too-big-to- fail. >> i yield back. thank you. >> i ask unanimous consent to

have two additional minutes. will also give the gentleman from vermont, mr. welch, two minutes. >> allred. >> thank you. i have spoken with you about this fall business lending fund. this legislative creation that does not have oversight from your office, can you talk about the small business lending fund and the impact it has especially on these tarp banks, these small car for banks that are still within the program? >> commerce enabled treasury to refinance, if you will, really move banks off of the tarp leisure. - ledger.

we made a series of recommendations to treasury, which is to reject it, to help protect the american taxpayer as those banks move from the tarp ledger. there's less oversight. there are less protections come up capital protections for the taxpayer. we have made a couple of recommendations and they have been rejected. it is not entirely within our jurisdiction on this issue. we have jurisdiction over the sale of troubled assets. hear, the sale of preferred shares of stock which are being sold from government entity and purchased by another government entity is very much within the confines of our gestation period for that, we have requested an audit. -- confines of our jurisdiction.

for that, we have requested an audit. we were told that we needed to hold off because treasury general counsel has to decide whether or not we have the right to conduct an audit of the exit of banks from tarp. i have not written a letter. i have not written -- may big deal about this because, frankly, i can add even conceive that there will come out and suggest that the very clear intent of congress that we have jurisdiction of tarp banks will not be there because the money has not been funded in to this program yet. we do not have a sense of immediacy yet. but if there is some those are legal construct that they adopt and suggested that we cannot do this, i certainly hope that my successor will immediately bring that to this committee's attention. this is a very important area because of the potential for the taxpayer to get a raw deal as a

top banks exit tarp and go into fdlf. >> thank you. i yield 2 minutes. >> on february 25, i requested that your office conduct an audit on homeowner complaints. can you tell me what is going on with that and when we can expect to have some results? >> i just got an e-mail that has the preliminary numbers. we're going through more than 2500 hits on our hot line. what has been helpful is it has helped us organize their hot line hits. since we have gotten your letter, our staff has been going through our hot line, literally and tree-by-entry and pulling them together. i got -- entry-by-entry and pulling the together. i expect we will have it to you before too long. i cannot give you an exact date.

you you're walking out, cannot dump a commitment to the people behind you that you cannot fulfil. >> ok. let me ask you this. one of the things that concerns me is that we will -- as you move on, the question becomes -- i would say what would your response be to what they're going to say in some way or another? it sounds like you made some reasonable recommendations and mr. masaad said he would be retooling. have you seen evidence of that?

why wouldn't the administration accept your recommendations -- some of your recommendations? i am curious and there is -- i am curious. >> there has been no retooling. yesterday which was on the date of the vote, there was an announcement. it was an op-ed in politico. they're going to two years later, almost 18 months after the promise to impose financial penalties on nonperforming servicers, there will be a plan. i read the op ed and it was brought to my attention. it sounded like a gimmick. they will give servicers grades and withhold payments based on that great. ok. it is some movement in that direction. although again, words, i do not

put a lot of faith in words given what we had 18 months ago. it is action that matters. i did what you would -- i would normally do. i reached out to treasury. give us the back of for this. let's evaluate. i am asked the question today, i can give an opinion about whether this will be effective, with the construct is and the response, first and got no response. we got a response, we can tell you because we do not have any other policy or plan other than what was outlined in the opposite. this is ready, fire, aim, all over again. this is one incident of potential retooling. meeting our recommendation. almost everyone's recommendation to start holding the servicers accountable financially. i am hopeful that this is better late than never as opposed to too little too late. a ultimately, where it's at this

point are just words. after the broken promises, we need to see some action on this front if we're going to get servicers to be held accountable for their terrible and abysmal performance that treasury acknowledges. >> thank you. >> we appreciate your testimony. your candor, your ability to react to a variety of questions. too often in congress, we see the person on the other side of the panel as more sport. it is interesting to have someone who was on the other side of the panel who is of a sporting mood. you are willing to react and answer the question posed to you. to often, in this place and around washington, is not about answering the question, it is about what you want to answer. there have been frank and

forthcoming, very open in answering the question supposed to you even when they're not convenient. we appreciate your service to your government and to your country. thank you for a time and testimony. most of all, thank you for your hard work. >good luck to you and your future endeavors. this committee will be in recess for five minutes.

the committee will come to order. mr. masaad, thank you for being here. it is the policy that witnesses be sworn in. if you will stand and raise your

right hand. do you solemnly swear or affirm the testimony you're about to get will be the truth, the whole truth, and nothing but the truth? >> i do. >> but the record reflect the witness answered in the affirmative. with that, we will recognize you for five minutes and you're written testimony will be entered into the record. we will have some questions from the panel. >> thank you. distinguished members, thank you for the opportunity to testify. you have invited me here to address whether the perception some institutions are too big to fail persists despite the passage of dodd-frank. the quarterly report suggested legacy may be's

the too big to fail institutions. moral hazard is a real and significant concern. to suggest this is the main legacy confuses a response to a crisis with the need to fix the flaws in a regulatory system. t.a.r.p. was necessary and it did what is supposed to do. its legacy is that a combined with other government actions helped save our economy from a catastrophic collapse and may have helped prevent the second great depression. the lesson we learned from having to take these actions was to better protect ourselves against future crises and to do with the moral hazard issue, our system needed to be fixed. today while more work remains, we have taken action to do just that. we have taken steps to address the moral hazard associated with the fact that t.a.r.p. and other interventions were necessary to address the problem.

19 months after it was enacted, congress passed the dodd frank act. dodd-frank contains three main elements. first, it gives the government of 42 shot down and break apart firms whose failure might threaten the system. it does so in a way that protects the economy while ensuring large financial firms bear the cost. it provides as with the tools to insure no firm will be insulated from the consequences of its actions are protected from the year. it makes clear that taxpayers must be asked to bear the cost of a financial firms failure. dodd-frank creates a framework for identifying and responding to rest in the financial system that creates the financial stability oversight council and the office of financial

research. it is charged with responding to emerging threats and promoting market discipline. ofr addresses the critical need for more standardized and useful data. dodd-frank requires regulators to impose substantially stronger provincial standards, risk-based capital standards will be stronger. complex firms will have to hold more. dodd-frank requires that certain large firms undergo regular stress tests and requires living wills. it restrict risky activities by banks such as proprietary trading as well as the excessive growth by acquisition of the largest firms. it sets a clear path for. we have made progress to implement its provisions but there is more work to do. the financial markets are watching this progress which underscores the importance of

the implementation. let me turn briefly back to t.a.r.p. a strong area is unwinding the assistance that had to be provided. since the last appeared, t.a.r.p. has continued to make good progress. we have reduced the dependence. we expect to receive $7.40 billion in repayments and taxpayers will have recovered two ordered $51 billion compared to the two ordered $45 billion invested. that will be the gain to the taxpayer. with the repayments over 70% of the amount has been recovered. the ultimate costs will be far less than anyone expected. the cbo estimated the costs to 8

$19 billion. it is one part of the actions taken to respond which included support for fannie mae, freddie mac, the federal reserve actions and guarantees money market funds and bank debt. it is important to look at the cost of these measures. the latest estimates of these interventions shows they are -- it should be a small profit when we look at those actions. this estimate does not include the stimulus measures and does not include the cost to our economy. jobs were lost and businesses fail. household wealth declined and tax revenues fell. that would have been worse without the emergency response. thank you for the opportunity to testify. i welcome your questions and let me say i am happy to respond to any of the matters that were raised whether it is pertaining to dodd-frank or other issues.

>> thank you. i recognize myself for five minutes. there are a number of questions dodd-frank raises. i read your editorial against my legislation ending the program. we do not have to litigate that. we won the vote so i am fine with that. we had a bipartisan vote as well. i hope that sends a strong message to the overseers of the program. the status quo is simply not acceptable. destroying credit scores, taking their savings, it is not a responsible program in order to help half a million people.

the people who are brought into the program and given verbal modifications of their mortgages and are kicked out of the program at the end of the day. the recent report was 700,002 ordered 40. we appreciate you releasing those numbers but it is not acceptable. we do not have to really get that. i want to raise a question i think is interesting. use of the taxpayers will not be on the hook for future bailouts. can you explain how you justify that under dodd-frank? >> dodd-frank provides taxpayers will not fund any bailout. it gives the authority -- >> how does it do that? >> it gives authority to fdic to liquidate and non-bank financial

firm that is threatening the system and to oppose those costs on creditors and shareholders, including the ability to clawback those costs and to the extent those costs cannot be imposed on creditors and shareholders. there is an assessment after the fact on large financial institutions. >> you disagree with the assertion that dodd-frank and robust, the comment that in the event of the next crisis we have to do extraordinary things beyond the scope of the dodd- frank legislation. >> as i testified before, the secretary's statement referred to the fact that it is difficult to predict the shape, the nature of a crisis. you may have to take extraordinary actions but he was referring to using the tools of dodd-frank. >> interesting. ok. another question i have.

is treasury in terms of looking at financial stability, are you looking at the interconnectedness of our financial markets across regulatory regimes? for and regulations and how they are moving forward. is there going to be, speaking to market participants. they see an opportunity for regulatory arbitrage and to make money based on the fact that other european countries are behind in terms of changing their financial regulations. is this a concern? >> absolutely. it is a good question. thank you for raising it. one of the important things is to work with foreign regulators to -- >> are you doing that? >> yes. there is work going on to do that. the dodd-frank law provides for

that. >> i know it does. how was that going? is that progressing? how is it progressing? what are you doing? >> there's a lot of work going on by each agency. as you know. >> i know there is a lot of work going on by each agency. you are stating some obvious things. it is part of the treasury tact and i have seen you before. i call my own time so you need to answer the question. >> i will be happy to provide you with details about that. i do not have them at my fingertips. it is not my responsibility to coordinate with our international friends on those regulatory regimes. it is my responsibility to implement t.a.r.p. i would be happy to get you a detailed response. >> it does not entail looking at international regulatory regimes is when i am trying to understand. i will move on.

it is fine. the financial stability oversight council. which is a creation of dodd- frank entails regular sitting on a council together. each regular has their own staff. is it your view in terms of preparing for this, how this council will operate? how their meetings will occur, where they will occur. is this being driven by the treasury department? >> fsoc is chaired by the secretary of the treasury and it has a number of members. 10 voting members as well as non-members. it meets periodically and it is promulgating rules. it is a lot of activity. it requires the coronation

across all agencies as you know. >> i do not believe i said that financial stability does not entail looking at international regimes. i think i said the contrary. i would be happy to have you details on what is going on. >> she said it was not york responsibility. >> that is correct. my responsibility is t.a.r.p. i will recognize mr. quigley for five minutes. >> thank you. good morning. questions this morning were brought up earlier about the community banks, the relative disadvantage. are you in a position to talk about the comparative disadvantage many of those banks, many in my state are at and what can be done? >> that is an important question. we have to have a thriving

community bank sector in this country. we have taken a number of actions to do that. we funded the obama -- the it obama administration did not provide funds to large banks. we provided funds to 400 small banks and 60 were funded out of the program. treasury push for the implementation of the small business lending fund to provide assistance. the differential you referred to is important. dodd-frank provides us with tools to address that. it allows us to impose tougher standards on the largest banks. capital standards, leveraged standards, liquidity standards. there is a lot of work to do to implement that but it does give us some tools to adjust the problem. -- addressed that problem. problem.ess that >> could you detail some of

those? >> some of our banks do not have access to capital markets. that is why we have been able to see a lot of the larger banks have repaid t.a.r.p. funds and some banks have not. we are continuing to work with them. is capital under a tart.a.r.p. not required to be repaid. the fact that we funded a lot of those banks has help them weather the storm. >> perception in my state is that as simplistic as it sounds, you have bailed out the big banks and shut down the small ones. if you are in my position, how do you respond? >> a good question. i think what we say is in fact under t.a.r.p., we provided capital to any small bank that

was viable. we ended up providing that overall, 650 banks. we're continuing to work with them. the issues you raise as to whether big banks have an advantage. dodd-frank is meant to provide us with tools to level the playing field. it needs to be fully implemented. >> a lagered discussion at some point. let me shift gears. march 21, a report that goldman sachs and others are skirting the volcker rule by saying it does apply to long-term principal investments. what has reaction to that then? >> i am not familiar with the particulars of implementing the volcker rule. i would be happy to get your response. >> thank you. i yield back.

>> this is not the time -- you had identified one of the things you would do is to try to be responsive to any comments that were made by the gentleman who testified before you. he raised an issue which was a question i think your general counsel was looking at, the right to conduct an audit of the exit of banks from t.a.r.p. is there any reason that should be a question? what is your position as to the authority of the inspector general to audit that process? >> thank you. it is a good question. the issue goes to whether

sigtarp or the inspector general has jurisdiction or what their jurisdiction is. i respect both are in total to those opinions and i defer to the judgment of the general counsel as to the proper jurisdiction between them and that is what is going on. >> you have a willingness to engage in this activity. if it is determined the inspector general from treasury is the entity by you, are reassured that the inspector general from treasury would conduct that same on it? >> it is not my determination. it is a question of interpreting what the law requires and provides for. both as to the small business lending fund law as well as t.a.r.p. both the special inspector general's office and the inspector general's office are very excellent operations that

have conducted a thorough audits and i would be happy to work with both of them as we have. that is an issue that will have to be resolved. thank you for observation. i did not understand why there would have been any reluctance. as we look at the larger question, not just where we have been because there is a collage of analysis and information on both sides, much of it credible about the successes of t.a.r.p. there is an issue where we're going. part of the problem is the unintended consequences with the bigger banks getting bigger. a lot of the oversight going toward the institutions that were not the target of this initial effort. what i am concerned about is the perception that now we have

rating agencies that are factoring in the likelihood that somebody is going to step in to cover these banks in shoring up their position. i am dramatically concerned about the consequences as ben bernanke said. it creates a limited market and limits market discipline in this context. how do we check the ability to be assured we are not going to see this again and one of the factors i see you have been looking at has been the idea of the living will. what is going to happen in practice with that living will? are we and forcing this, are we requiring that an effort be made to compel these organizations to explain how they will get out of it? >> absolutely. it is a good question. i was rather surprised by the

comment that somehow treasury was opposed to this. it is a requirement of dodd- frank. of limitation of living wills is left to the fdic and the federal reserve. they have until january 2012 to work on it. it was part of the proposal that treasury made and we have backed the concept the entire time. you are right, that is a critical tool on how -- and how thoroughly it that is enforced and how thorough those plans are will make a critical difference. in terms of the rating agencies, they're watching this closely. they should. again, have made it clear that what they're doing is monitoring it. they are seeing -- >> they are making calculations and the calculation is we're reading the banks and giving them a preferential position with respect to the market based on their confidence that someone

else will step in. >> that is correct and they are doing that worldwide. they have said we're closely monitoring the situation to see how these resolution regimes are implemented and to see if there is the political will to ensure the there are no bailouts in the future. >> what would that take? what should be requiring for them to people to pass the scrutiny of that living well analysis? >> where at this early stage of the implementation. the law was passed eight months ago and to say it is not going to work, it is like saying we passed the securities act in 1933, because they cannot fix our markets within six months, they did not work. we set up the sec and took actions and we have the most vibrant and robust capital markets. it is like saying we passed the

civil rights act and it did not end discrimination. there is time needed to implement. we're busy working on it. it involves many agencies, not just treasure. i will come the suggestions if he has suggestions on how to implement it. i have not heard any specifics. >> thank you. i turned to the gentleman from maryland. >> thank you. let me ask you this. you have heard the testimony earlier. >> i did. >> you talked earlier, you said there would be some retooling. basically if i were to sum up what mr. borowski said,

it is late but at least you are aiming in the right direction. he did not seem to have confidence based on the past that your department is going to do very much of anything. even under the threat of demise of the program. i am wondering what is your reaction to that? >> thank you for the question. my reaction is to be puzzled. i felt like there was strong criticism but i did not hear specifics. sigtarp made recommendations to us. we have implemented 14. the ones we did not would have made it harder for people to get assistance. it would have required us to thumbprint anyone and would have

required more documentation about income, comparing their income to when they got their mortgage. other things like that. the last recommendation was in april of last year. lately, he said the program is a failure but we have not seen in thesanything specific. we are expanding our compliance reporting and we will withhold incentives. on that, what we did from the outset was we had a very strong compliance program to get servicers to fix the problem. there was not -- we only pay money when they enter into the permanent modification. there were not entering which is why we focused on remedial actions. >> there is a lot of frustration on both sides of the aisle. the question is, what can we do

pass the conversation to affect more people? is there something we need to do differently? i for one and many of my colleagues voted against the bill yesterday to and the program. most of us said to ourselves and each other treasury has to do better. this is real. i am wondering, what is going to happen? we cannot keep going down this road to where we're going. there are people suffering and with all that money out there, it gives the opposition more ammunition to not only destroy the program, but also not replace it with anything. that goes against everything that we're trying to accomplish.

i want to know what direction is. >> you are right. those people who want to end the program have not offered any alternatives. we continue to look at ways we can improve it. it is a difficult issue. we have a lot of people who spent time on this and if there was a silver bullet, it is not easy. the program is continuing to help tens of thousands. it is affecting people indirectly through the standards that were setting -- we are setting. >> do we need to raise the standards? >> absolutely. we need national servicing standards and there's a lot of activity going on in that regard through the discussions on the foreclosure problems and otherwise and we will see that coming. we are committed to that. we have met with members of

congress about specific things that need to be in those national servicing standards. >> one of the things he said, there are the tools in dodd- frank but he said he does not believe that the administration has the will to carry it out. i want you to comment on that but on this other issue. if we take funds away from the budget, how would that affect the market perception? % but taking awayrcent tha funds would not be a good thing. we need to make sure we

vigorously enforce this. as to the comment, i do not know what specifics he is referring to. the implementation process is an open one. there are a number of rulemaking proceedings going on. if he has comments on those, he can make them. if he thinks certain things are not happening fast enough, he should point that out. >> thank you. >> thank you. the gentle lady from new york. >> thank you. thank you for being here this morning and a willingness to testify. i am looking at your opening statement. i wondered if we could flush out a couple items that are in your comments. in reference to dodd-frank, you listed three points for us. the first one is dodd-frank gives the government the authority to shut down and broke apart large non-bank financial

firms. to what extent, what is the scope of that? should we concern the government has the kind of power they can shut down a private entity? >> it is a good question. there is a process that has to go one. a determination that has to be made by treasury and the vote of the fdic and the federal reserve and consultation with the president. there are criteria that have to be met to do that in terms of when you can use that authority. those criteria include there is not another way to do with the situation. the firm does pose a threat to our financial stability and there are others. there is rulemaking going on to further explicate that. it is important for there to be clarity as to those rules. >> thank you.

the second point for identifying and responding to risk. that would tie back to the first point. there are -- are there benchmarks you are going to look for that will identify someone is in trouble and the government needs to take this aggressive action? >> there are standards that need to be implemented and fleshed out more. the key thing is that prior to the passage of dodd-frank, we regulated entities based on the type of entity and we did not have a comprehensive way of looking at risk to the system. that is what we have now. that is why this law is so important and why implementation is important. we can take proactive measures to impose provincial standards, whether it's the capital, leveraged, liquidity, which can limit for risky activities and there is a process where you

exercise -- you can impose restraints on firms. it gives us a lot of tools but they need to be implemented. >> going along with that gives you the tools. what is the concern of the government? many feel dodd-frank is an overreach. we want to prevent what happened but we want to maintain free market. at what point does the government step back and say we're not going to get involved? >> there is a balance and congress struck the right balance plan dodd-frank -- in dodd-frank and give us the tools. that is why in has to be implemented thoughtfully overtime. that may change of time as our financial changes.

>> one more question regarding your testimony. you talked about dodd-frank, you say "much work needs to be done." can you expand. there are 250 rulemaking that needs to be done and studies the need to happen. it involves efforts of many agencies, not just treasury or fdic but the federal reserve and the sec and others. that is the work i am referring to. a number of those things, -- have been done or in process. there is a lot more work to be done. >> thank you. i have one last question. the government is a player and referee. do you say a conflict in all of this? >> i do not think we want the

government to be a player in the sense of having interest in firms. that is why we're unwinding the program quickly and get out of the business of owning stakes in private companies. we have been successful in doing that quickly. the government needs to stick to a to roll of regulating risk and monitoring risk and taking action when firms pose risks to the system but clearly, we have to have a system where there is no firm that is too big to fail. and firms fail as a result of the actions they take. >> thank you. i yield back. >> the chair recognizes the gentle lady from new york. >> thank you and welcome to the committee. during the financial crisis, some firms became so risky and interconnected that their

failure was a threat to the broader economy. i know congress tried to address that in treasury -- and treasury dodd-frank.-- in can you describe what happened [unintelligible] number of experts looking at the riskiness of activities. the fsoc will make determinations about which firms opposed those risks based on their interconnectedness, their leverage, the nature of their activities. the work is ongoing. those determinations have not been made yet. there will be made by fsoc, which is comprised of all these

agencies. >> thank you. one of the factors that led to the crisis is the evolution of the shutter banking system. trading and sales of derivatives had grown to be a trillion dollar business but it became evident that people, the treasury, even the companies did not understand the scope, location of the risk of the size -- location of the risk and this size. it became billions oand it was o control or understanding. can you comment on what advances you have made on the derivative market and bring it into the light of day to ensure it can exist without posing a threat

to financial stability? " certainly. dodd-frank does provide provisions for greater transparency and regulation of the derivatives market. we did not have those previously. there is a lot of work going on in that regard. >> can you specify? >> i am not directly involved. that involves treasury. the sec and ftc. i will be happy to arrange that. >> the growth illustrates that federal regulators had failed to keep up with market innovation and development. regulation could not keep up with innovation and dynamic action taking place in the markets. can you ensure that dodd-frank and the regulations will keep pace with the innovations in the

financial markets? >> it is a good question. what it does is give us the tools to do that. we have to implement them. previously, we did not have a system where we could look at risk across our entire system. we regulated banks and had regulation of other entities. we have an entire shuttle banking system developed and we had all this risk being taken on by firms that were not subject to regulation. aig is a classic example. there was no federal regulation of daiichi and it engaged in derivatives that were destructive. we have wound that down and there is the reason they will repay the government every dollar we gave them. >> we heard testimony earlier and one of the points he raised

is the act did not reach far enough to address international firms that operate globally. -- are financial institutions at a disadvantage because we have regulation? many of these other areas do not. they do not have the capital requirements. they do not have the rest restraints, the oversight that american firms will be having. >> thank you for that. the international coordination piece of this is very critical. we are dealing in a global world. we have these large institutions who are not national. they operate worldwide. that is why the coordination is

important. it is going on and the federal reserve is involved and treasury. i would be happy to get you more details on what is taking place in that regard. congress could not legislate something that mandates what our foreign counterparts do. it requires us to engage in coordination and cooperation with them. >> the basel talks, where do they stand? >> that will result in higher capital requirements that will be phased in over time that are badly needed. many of our institutions are better capitalized today than their foreign counterparts. we need to phase in those tougher standards. >> my time has expired. thank you for your service. >> thank you. >> thank you. let me turn to the gentleman from in illinois.

>> thank you and thank you for your testimony today. let me ask you a brief question related to the insurance industry. i have heard from people who expressed concerns with how dodd-frank affects the insurance industry. insurers are heavily regulated, including an industry funded state guaranty system that helps secure policyholders in the event of an insurance company failure. most insurers are not engaged in significant unregulated interconnected off-balance sheet, highly leveraged activities. so designations such as systemically important would appear to be on warranted in this industry. overlapping and conflicting

roles between state and federal regulators adds a layer of regulation that would disadvantage these insurers and their customers. as you know in the event of another large financial company failure, companies with assets over $50 billion could be on the hook to pay for the resolution of these failed firms even though they exhibited no bad behavior of their own. insurance companies who will continue to be resolved in the existing state system are never resolved by the orderly liquidation process and yet have to pay to resolve banks and other bad actors in the financial industry. these costs will inevitably be borne by the consumer. if insurance companies are regulated at the state level, and if it is clear they do not participate in systemically

risky behavior, why do they have to bail out other failing financial service companies that do participate in this risky behavior? >> your question raises a number of important issues. let me try my best. where i would start is we have come out of a time when we did have a very large insurance company that was regulated at the state level but which posed huge risks to our system. it was not regulated beyond that. that was b.i.t.. we did not have the tools to do with it. its failure could have brought down our entire system. that has animated the provisions of dodd-frank that address the insurance industry.

i recognize your point. we have to make sure these provisions are implemented in a way that is fair to those companies that do not pose those risks and do not engage in those activities. that is a process that we have to focus on as we go for. fsoc is focused on those issues. we need to do this in a way that imposes standards and restrictions on those funds that pose a significant risk to the system while leveling the playing field for the others. >> you acknowledged with regard to aig, it was not their insurance business that got them in trouble or brought them down. it is a complicated question. there were things going on with their insurance business that did pose some risks. you are correct that aig was involved in a number of

activities that went outside the traditional insurance area. and outside of the traditional insurance activities which did not get them in trouble. >> it is a complicated question. they had derivatives that posed a lot of risks but they were engaged in some activities with the capital through their insurance business that pose the illiquidity challenge and that was one of the reasons they had liquidity problems and had to -- the fed had to step in. >> is there a part of you that thinks it is a bit of a stretch to lump the insurance industry into dodd-frank as well? >> the regulation of large firms that pose a risk to the system is designed to recognize we can

achieve our goal. doing that by type of entity or a business line today, we have to have the ability to look across the entire financial industry and determine where are the risks coming from and take appropriate action. at the same time, we have to make sure that those regulations do not impose unfair burdens on the other companies that are not -- engaged in those activities. >> i would second that and reiterate the fact that the insurance industry did not engage in systemically risky behavior. thank you. >> in your testimony, you say outright that dodd-frank was necessary because of the moral

hazard when government provided emergency assistance to private firms. you believe that dodd-frank answered the too big to fail question. >> yes. dodd-frank gives us the tools to address the too big to fail problem. >> too big to fail is no longer permissible? >> as i said when you are out of -- when you were out of the room, we have to implement the law. the law is not a magic wand. it is like saying when we passed the civil rights act, that did not eliminate discrimination. we have a lot of work to do. >> it is a heck of an analogy. in today's financial times, alan greenspan said, the financial

system on which dodd-frank is thing imposed as far more complex than the lawmakers and even most regulators apparently contemplate. we will almost certainly end up with a number of regulatory inconsistencies whose consequences cannot readily be anticipated. do you agree? >> no. but i would say is the question is what are we saying would be the alternative? i do not think anyone who would say we would be better off without the tools that we have provided for through dodd-frank to regulate risk to impose higher provincial standards to be able to prevent any firm from threading our entire system. the question is, we have to implement those wisely.

>> are we doing that? >> i think we are. >> to continue with the peace in -- the piece. we are preventing undesirable repercussions that might happen to a market when its conditions are altered. no one has such killed. do you agree or disagree? >> i think we have to try. i do not think any of us want to be in a situation that we were in in fall 2008 where because we had a regulatory system that had been outgrown, we had a financial industry where there was a huge amount of risk being taken on without transparency, without adequate redcoat -- regulation and that is what contributed to the crisis we have. because of that, we learned a

lesson that we need to overhaul our system. that is the judgment congress has made and the task is to implement the judgment. >> a number of folks have testified during the last financial crisis in 2008, the laws that we had then we could have prevented the crisis. do you agree? >> that is news to me. i would be happy to discuss that. >> basically it is your view that dodd-frank ended too big to fail. >> dodd-frank gives us the tools to address the problem. >> ok. moving back to hamp. we are on our second round. you made an interesting face

when i was saying we had 740,000 homeowners who have been harmed by this program. do you disagree? >> i do and i appreciate -- >> the focus of fallen out of this program that enter, this is 1.4 million. trial modifications. do you understand when they are entered, they are told verbally that oftentimes they would make a lower monthly payment going for. are you aware of that? >> i am. >> when you are paying less than what is contractually obligated, that harms your credit. are you aware of that? yes or no?

>> if i can answer how the trial modification works. it is important to have all the facts on the table. the trial modification. baht -- provides a 3 month period. we have to determine if someone qualifies for permanent modification. what we did at the outset was we allowed people, servicers to except people into trial modifications on the basis of what we call stated income. you can raise your hand and say this is how much i make, i qualified. it was a terrible crisis because we have people -- >> i read your editorial. i know you are trying to go through all this. i understand how this works. operationally. i want to make sure you understand how this works. when you are given that verbal

modification, this temporary modification, does that hurt your credit? >your not answering the question. either it does or does not. -- you are not answering the question. >> can i answer the question in this regard, if you will allow me. you refer to all these people being hurt. publish on what happens to those people. those statistics are based on servicer surveys. it is in our monthly report. it shows what happens. the majority of them ended up by an alternative modifications or

alternative payment plans for our current. very few went to foreclosure. do you believe hamp has harmed any borrower? i am sure there are people who were harmed. >> how many? >> i do not know the answer. >> i thought you published statistics about what happened. >> will publish a lot of statistics. i am trying my best to address your concern. i think it is important to remember that when you implement a program like this on a massive scale during a crisis, we were buying time. most of them ended up in better situations. based on the servicer surveys, the majority of them --

>> how many went to foreclosure? have the report. >> completion is 58,000. their loan was not increased. they owed the same amount. >> when they are not given a permanent modification, they are owed -- they owe there are penalties and fees associated as long as additional interest.

that temporary modification has left them worse off than if they had not been. >> the vast majority of them end up being in better situations. i still think it was the right policy judgment to make. >> even if it is leaving them worse off? >> it is not that it is actively harming them, they have a mortgage. they would still owe what was previously do. the program did not make them worse off. >> i have numerous examples i can read from yeah. the program has harmed a large number of individuals and the

treasury department, the special inspector general's report has been out there for quite awhile. you have had plenty of authority to go in and fix it and you have not. how many are and pending foreclosures? parks foreclosures starts, those lot except for trial modifications is 163,000. many of those could have been foreclosures star for they even went into the trial. >> if you would like to add anything else, and i will give the opportunity. >> we faced the worst housing

crisis in a generation. we were trying to roll out a program that would help a lot of people. many people were already delinquent for months. we were trying to create some breathing room. >> first of all, can i have your opinion in the record. >> without objection. >> they are very grateful as are

the families that are able to stay in their home because of the family. i would say it is easy to throw stones than criticize, it is hard to come up with a program that addressed this crisis which a large part of it was the housing crisis. for every person who stayed in their home, not only did it help that person, it helped their community. they can bring down the value of housing for their neighbors. it helped to their community, their city, the overall financial stability of their country. housing is roughly 25% of our economy. stabilize this, we

will not stabilize out of this great recession. i am very concerned that the republican majority has eliminated four critical housing programs which help people to stay in their homes. i would say that this is very dishonest to criticize the program for not helping people that have no help to begin with and they did not get in the program because they did not meet the criteria that the program had that taxpayers' dollars would not be spent unless people had a job, and credit record, and were believed to be able to meet that commitment going forward. i would like to congratulate the treasury department's and the obama administration for not just criticizing and saying that we have a problem but getting out there and doing something.

when fdr had a problem, he did not look at it, he started working on it. come in with some ideas on how to make the program better. to come in and criticize the program when you have no ideas of your own, when you have not done anything to help the people and i would say the overall economy. i want to congratulate you on the work that you've done and i support the program and i hope that president obama has a lot of veto into in his den and if the republican bill gets to his desk, it is my hope that he will veto it. i respectfully ask a majority if they will have a hearing if we can bring in directors from across the country, people on the front line working with our government to help people stay in their homes. the city that i represent, the

officials that do this every day, the not-for-profit sector are committed and that banks that have voluntarily stepped up to the bank for help has said this program has worked. to criticize because people did not get into the program because the criteria was so high, i agree with the proposal from treasury to keep that criteria away the upper tax taxpayer money. i would like to move on to the park work out. -- tarp work out. bloomberg testified that the investments have actually provided taxpayers with "higher

returns than yields paid on treasury bonds. and enough money to fund the sec for the next two decades." "the government has earned 25.2 billion on its investment in banks and insurance companies and an 8.2% return over two years. that beat out high yield savings accounts, money-market funds, certificates of deposit. >> you are correct that we have had some good returns on the program but i am not sure about those numbers. >> can you describe generally the ways in which treasury is seeking to maximize taxpayers investments and insurer that our

country and taxpayers are made whole? >> certainly, congresswoman. the purpose of tarp is to stabilize the system and not make money. it is terrific that this will not cost very much and we are maximizing returns on the various programs. we will earn about 20 billion on the bank investments. we will have some loss. in terms of those who were in trial, they are actually about half of what i said. the foreclosure the -- 20,000. >> i will give the ranking member six minutes since i went

well over my time out of fairness. >> i want to associate myself with every syllable that miss maloney to said. part of the frustration is that we want even more people to be helped. the reason for the criteria was the dilemma that people did not want a program that the stands would be so low that there would be a lot of people failing. >> i think it is a few things.

we did had prudent eligibility criteria. we don't provide modifications four vacant homes, says we don't provide those who provide assistance for those in need to move onto another situation and we make sure that the modification it makes sense. the pool of people is about 1.4 million. we have reached a lot of those. this is a very difficult problem. we did take funds and reallocate them to the states so that the states can come up, particularly those that are hardest hit.

>> early on, much has been made with regard to the whole issue that it was protected by the president's that more people would be helped then was. is there something that happened along the way that cause you to look at this thing to say, maybe we cannot accomplish those numbers? >> we recognize that the eligibility pool is not as big as it thought it might be.

people had no historical basis to say that this is how you should do it. the bid is model was set up to collect payments on performing loans. we have tried to take a lot of actions to improve that. we need national servicing standards. there is a lot of work going on. it is hard to reach people sometimes. people do not necessarily want to talk on the phone. it was hard to reach people. >> going back to the trauma of vacation so that we have a clear picture.

this is a very important point, that a lot the people who did not end up with modifications, they were able to resolve their problems. >> going back to the drum of -- going back to the drama of modifications of that we have a clear victor. >> those that were done, the industry largely adopted the affordability standards. as a result of the other protections we put in place, the effect has been very indirect in terms of improving many people. there has been about 2 million modifications done outside since we launch this program.

our standards helped to cause that. we put in a number of protections that now the industry is following in terms of prohibitions on tool stracke -- dual track where someone could be foreclosed upon. servicesre the serviceto to require them for other types -- require the services to evaluate them for other types of assistance before they can foreclosed upon them. >> i assume you have access to information or maybe you are a part of these negotiations with the attorney general. are you a part of that? >> i am aware of what is going on.

>> might this be affected by anything that comes out of that? >> this certainly will be. what is going on and that -- again, i appreciate the question, but clearly this is another example of the fact that this industry is broken. it did not have the standards that we needed and it did not have the ability to cope with this crisis. we saw this a through what they were doing with foreclosures. what is emerging from this is clearly a push to get national service in standards. yes, those will have an effect across the whole industry. that is what we need. >> thank you very much. >> i appreciate the ranking members' questions, especially the last question which is of

interest. this is a push for national service in standards. mr. chairman -- >> mr. chairman, what is evidenced what has been found to foreclosures is that we do need national servicing standards. as to what exactly would be in a settlement would be determined by the various parties. >> thank you for your testimony and being here today. at this time i asked unanimous consent to submit for the record three written testimonies of what would have been a panel today, a testimony by --, and anthony sanders.

without objection, so ordered. today's hearing was certainly interesting. we have dramatically different views of the facts and the lay of the land but this is stimulating and interesting for us to inform congress is thinking on how the implementation is progressing. the impact of the program and the bailouts and whether or not they continue to be the rule of the day. a couple of interesting points in terms of -- testimony, he refers to this as a broken promise. the main goals of tarp were not

followed through with. finally, he also testified that what he said was "resolution authority is a joke." and that goes to the heart of what many of us here in terms of congress, we believe is one of the lasting impacts of dog frank. -- dodd- frank. mr. massad did a good job of defending the administration's position. thank you. this meeting is adjourned. >> thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]

[inaudible] --[unintelligible]

>> coming up next, president obama and senate minority leader mitch mcconnell talk about energy policy. later, a hearing on nuclear plant safety with the head of the nuclear regulatory commission. robert gates and mike mullen come to capitol hill tomorrow to testify about military operations in libya in a pair of congressional hearings. you can watch both of them live beginning with the house armed services committee at 9:00 a.m. eastern. then, they will be at a hearing of the senate armed services committee. both hearings will be on c-span 3 and on our website c-span.org. >> if i can say what i wanted as mayor and the only person who got in trouble was me -- >> stephen goldsmith spend 8

years as mayor of indianapolis. today, he has a different job description. >> i'm here to make the streets cleaner and safer where -- and super -- i am here to make the streets cleaner and safer. >> for more than four decades, the libyan people have been ruled by a tyrant, muammar gaddafi. we have denied his -- he has denied his people's freedom. he has murdered opponents abroad and at home and has terrorized people around the world. >> find out what people are saying about libya from the president and other administration officials and other leaders around the world

all online at the c-span video library. >> president obama called for a 1/3 cut and all oil imports by 2025. the plan includes increased domestic oil production and incentives for alternative energy technology. >> the president's remarks are 45 minutes. >> ladies and gentlemen, the president of the united states. [applause] president of the united states. [applause] >> thank you. thank you so much. thank you, everybody.

[cheers and applause] thank you. thank you so much. thank you, everybody. everybody please have a seat. it is wonderful to be back in georgetown. we have a number of acknowledgments. first of all, i want to thank the president for his outstanding leadership here but also for his hospitality. we also have secretary stephen to come up my energy secretary. where is he? -- were also have secretary steven chu, my secretary of energy. our transportation

secretary. lisa jackson, our epa's administrator. nancy sutlee, our environmental quality director right here. a couple of great members of congress. where is jay? there he is over there. and we have -- he did not bring the weather with him but the mayor of los angeles, california is in the house. [cheers and applause] mayor scott smith of mesa, arizona is here. [applause] most important, the students of georgetown university are here.

[cheers and applause] i want to start with a difficult subject. coaches here and i love the great traditions they have. i turned out it was pretty good. i had georgetown winning in the game in my bracket so we're all hurting here. that is what next year is for. we meet here as a tumultuous time for the world. in a matter of months, we have seen regimes toppled, we have seen democracy take root, in

africa and the middle east. we have witnessed a terrible earthquake, a catastrophic tsunami, a nuclear emergency that has battered one of our strongest allies and closest friends in the world's third largest economy. we have fled an international effort in the bid to prevent a massacre and maintain stability throughout the broader region. as americans, we're heartbroken by the lives that have been lost as a result of these events. the thirsty moved by for freedom in the summit nations. we're moved by the strength of the perseverance of the japanese people. it is natural to feel anxious

about what all of this means for us. one big area of concern has been the cost of security of our energy. the situation in the middle east implicates our energy security. the situation in japan leads us to ask questions about our energy sources. in an economy that relies so heavily on oil, rising prices at the pump affect everybody. workers, farmers, truck drivers, restaurant owners, students who are lucky enough to have a car. businesses, you see rising prices at the pump hurt their

bottom line. families feel the pinch when they filled their tanks. and for americans who are struggling to get by, a hike in gas prices really makes their lives that much harder. it hurts. if you are somebody who works in a relatively low-wage job and you have a commute to work, it takes up a big chunk of your income. you may not be able to buy as many groceries. you may have to cut back on medicine in order to fill the gas tank. this is something that everybody is affected by. we have been down this road before. it was three years ago that gas prices topped four dollars a

gallon. -- $4 a gallon on. i was in the middle of a presidential campaign. working folks remember because it hit a lot of people pretty hard. and because we're at the height of political season, there were you remember that -- you remember that. "drill, baby, drill," you remember that. there was a lot of human cry, a lot of fulminating and hand- wringing but nothing actually happened.

imagine that in washington. the truth is, none of these gimmicks or slogans made a bit of difference. when gas prices finally did fall, it was mostly because the global recession have led to less demand for oil. companies were producing less than the demand for petroleum went down prices went down. now that the economy is recovering, demand is back up. the turmoil in the middle east and it is not surprising oil prices are higher. every time the price of a barrel of oil on the world market rises by $10, a gallon of gas goes up by 25 cents.

the point is, the ups and downs in gas prices historically have tended to be temporary. when you look at the long term trends, they're going to be more ups in gas prices than downs. that is because you have countries like india and china that are growing at a rapid clip. as 2 billion more people start consuming more goods, they want cars just like we have got cars, they want to use energy to make their lives easier, just like we have got. it is absolutely certain that demand will go a lot faster than supply. it is a fact. here is the bottom line.

there are no quick fixes. anybody who tells you otherwise is not telling you the truth. we will keep on being a victim to shifts in the oil market until we finally get serious about a long-term policy for a secure, affordable energy future. we will have to think long term which is why i came here. to talk to young people here at georgetown. you have more of a stake in us getting our energy policy right than just about anybody. here is a source of concern. we have known about the dangers of our oil dependence for decades. richard nixon talked about free ourselves from dependence on

foreign oil. every president since that time has talked about free ourselves from dependence on foreign oil. politicians of every stripe have promised energy independence but that promise has so far gone unmet. i talked about reducing america's dependence on oil when i was running for president. i am proud of the historic problem -- progress we have made towards that goal. we will talk about that in a little bit. i have to be honest. we run into the same political gridlock, the seema inertia that has held us back for decades. that has to change. that has to change. we cannot keep going from shock when gas prices go up to a trance when they go back down. we go back to what we are doing

until there is a price spike and then we are shocked again. we cannot rush to propose action when gas prices are high and hit the snooze button when they fall. we cannot keep on doing that. the united states of america cannot afford to buy that our long term prosperity, our long- term security on a resource that will eventually run out. even before runs out, we will get more expensive -- it will get more expensive to extract from the ground. we cannot afford it when the cost is so high. not when you're generation needs to get this right. it is time to do what we can to secure our energy future. and today, i want to announce a new goal, one that is reasonable, one that is achievable, and one that is necessary.

when i was elected to this office, americans imported 11 million barrels of oil a day. by a little more than a decade from now, we will have cut that by one-third. that is something we can achieve. [applause] we can cut our oil dependence by one-third. i set this goal knowing that we are still going to have to import some oil. it will remain an important part of our energy portfolio for quite some time, until we have gone alternative energy strategy is fully in force -- strategies fully in force. when we look at -- when it comes to the oil we import from other nations, we have to look at

neighbors like canada and mexico that are stable and steady and reliable sources. we have to look at other countries like brazil. part of the reason i went down there is to talk about energy with the brazilians. the recently discovered significant new oil reserves, and we can share american technology and know-how with them as they develop these resources. but our best opportunities to enhance our energy security can be found in our backyard. because we boast one critical, renewable resource that the rest of the world cannot match. american ingenuity. american ingenuity, american know-how. to make ourselves more secure, to control our energy future, we will have to harness all that ingenuity. it is a task will not be finished with by the end of my

presidency, or even by the end of the next presidency. if we continue the work that we have begun over the last two years, we will not just spark new jobs, industries, and yourations, we will lealeave generation and future generations with a country that is safer, that is healthier, and that is more prosperous. today, my administration is releasing a blueprint for a secure energy future the outlines of a comprehensive national policy, one that we have been pursuing since the day i took office. cutting our oil dependence by one-third as part of that plan. here at georgetown, i would like to talk in broad strokes about how we can achieve these goals. meeting the goal of cutting our oil dependence depends on two

things. finding and producing more oil at home, second, reducing our overall dependence on oil with cleaner alternative fuels and greater efficiency. this begins by continuing to increase america's oil supply. even for those of you who are interested in seeing a reduction in our dependence on fossil fuels -- and i know how passionate young people are about issues like climate change -- the fact of the matter is, is that for quite some time, america is going to be still dependent on oil in making its economy work. now, last year, american oil production reached its highest level since 2003. for the first time in more than a decade, while we imported account for less than half of

the liquid fuel we consumed. that was a good trend. and my administration is encouraging offshore oil exploration and production as long as it is safe and responsible. i do not think anyone here has forgotten what happened last year, where we had to do with the largest spill in our history. i know some of the fishermen in the gulf coast has nohave not forgotten. and what we learned from that disaster helped us put in place marder standards of safety and responsibility. for example, if you're going to drill in deep water, you have to prove before you start drilling that you can contain an underwater spill.

that is just common sense. we have been hearing folks say, the obama administration, the restrictions on how well companies operate offshore. well, yes, because we just spend all that time, energy, and money trying to clean up a big mess. i do not know about you, but i do not have an nation. i remember these things. [laughter] [applause] i think it was important for us to make sure that we prevent something like that from happening again. [applause] expeditere working to new drilling permits for companies that meet these higher standards. since there were put in, we have approved 39 new shallow water permits, we have approved 7 deepwater permits in recent weeks. when it comes to drilling offshore, my administration approved more than two permits last year for every new well but the industry started to drill.

and they claim that my illustration is responsible for oil prices because we have shut down oil production, and they claim is simply untrue. it does not track with reality. we have said if you are drilling offshore, you have to have a plan to make sure that we do not have the kind of catastrophe we had last year. and i do not think that there's anybody who should dispute that that is the right strategy to pursue. moreover, we're pushing the oil industry to to get damage of the opportunities they have already got. right now, the industry holds tens of millions of acres of leases where they are not producing a single drop. they're sitting on supplies of

american energy that are ready to be tapped. that is what part of our plan is to provide better incentives that promote rapid, responsible to delmon of these resources. we're exploring and assessing new frontiers from alaska to the mid and sell the linnik states because producing more oil in america can help lower oil prices or create jobs and can enhance energy security, but we have to do it in the right way. if we increased mazzucco production, that will not be the long-term solution to our energy challenge. in about the statistical the time and forgive me for repeating it again. america holds 2% of the world's proven oil reserves.

what that means is, is that even if we drilled every drop of oil out of every single one of the reserves that we possess, offshore and onshore, it's the one not be enough to meet our long-term needs. we consume 25% of the world's oil. we have 2% of the rate serves -- reserves. even if we doubled u.s. oil production, we're still really short. so the only way for america's energy supply to be truly secure is by permanently reducing our dependence on oil. we're going to have to find ways to boost our efficiency so we use less oil. we have got to discover and produce cleaner, renewable sources of energy but also produce less carbon pollution, which is threatening our climate. and we have got to do it

quickly. no in terms of new sources of energy, we have a few different options. the first is natural gas. recent innovations have given us the opportunity to tap large reserves, perhaps a century's worth of reserves, 100 years worth of reserves, in the shale under our feet. but just as it is true in terms of us extracting oil from the ground, we have to make sure that we are extracting natural gas safely, without polluting our water supply. that is why i asked secretary chu to work with other agencies, industry,broke ganatural gas state, and environmental experts to improve the safety of this process. and chu is the right to do this.

he has got a nobel prize in physics. he actually deserved his nobel prize. [laughter] [applause] and this is the kind of thing that he likes to do for fun on the weekend. he goes into his garage and tinkers around and figures out how to extract natural gas. i am going to embarrass him further. [laughter] last year, when we were trying to figure out how to close the the cap, i sent chu down to sit in the bp offices, and he essentially designed the cap that work and he dropped the specs for it and had bp building, constructed. t it.ild it, constructing

this is somebody who knows what he is doing. so for those of you who are studying physics, it may actually pay off some day. but the potential for natural gas is enormous. and this is an area where there has actually been some broad bipartisan agreement. last year, more than 150 members of congress from both sides of the aisle produce legislation providing incentives to use cleaner burning natural gas in our vehicles instead of oil. that is a big deal. getting 150 members of congress to agree on anything is a big deal. they were joined by t. boone pickens, a businessman who made his fortune on oil, but who is out there making the simple point that we simply cannot drill our way out of our energy problems.

so i ask members of congress and all the interested parties involved to keep at it, pass a bill that helps us achieve the goal of extracting natural gas in a safe, environmentally sound way. another substitute for oil that holds tremendous promise is renewable biofuels, not just ethanol, but by a fuel made from things like switchgrass and wood chips and biomass. if anybody doubts the potential of these fuels, consider brazil. i was just there last week. half of brazil's vehicles can run on biofuel, half of their fleet of automobiles can run on biofuel instead of petroleum. last week, our air force used an

advanced biofuel planned to fly a record 22, and f-22 rapture faster than the speed of sound. think about that. fly fasterrapturraptor can than the speed of sound on biomass, that i know the old bitter that you love god, that you are driving around and can probably do so too. there is no reason why we cannot have our cars do the same. the air force's m. e. to half -- get half of its domestic jet fuel from alternative sources by 2016. i am directing the navy and the provision of energy and agriculture to work with the private sector to create advanced by a fuel that can power not just fighter jets but trucks and commercial airlines. there is no reason we should not be using these renewable fuels throughout america. that is what we're investing in things like filling stations and

research into the next generation of biofuel. one of the biggest problems we have with alternative energy is not just producing the energy but disturbing it. we have gas stations all around the country, so whenever you need gas in the you can fellow, it does not matter where you are. we have got to have that same kind of distribution network when it comes to our renewable energy sources so that when you are converting to a different kind of car that runs on a different kind of energy, you are going to be able to have that same convenience. otherwise, the market will not work and it will not run. -- it will not grow. over the next two years, we will help entrepreneurs break ground for a boy or next generation biorefineries. each with a capacity of more than 20 million gallons per year. we should look for ways to

reform biofuel incentive to make sure they are meeting today's challenges and they are saving taxpayers money. as we replace oil with fuels like natural gas and biofuel, we can reduce our dependence by making cars and trucks that use less oil in the first place. 70% of our petroleum consumption goes to transportation. 70%. and by the way, so does the second biggest chunk of most families budget goes into transportation. that is why one of the best ways to make our economy less dependent on oil and save more money is to make our transportation sector more efficient. we went through 30 years where we did not raise fuel efficiency standards on cars. and part of what happened in the u.s. auto industry was because oil appeared relatively cheap, the u.s. auto industry decided

we are just going to make our money on suvs and we will not worry about fuel efficiency. 30 years of lost time when it comes to technology that could improve the efficiency of cars. so last year, we established a ground breaking national fuel efficiency standards for cars and trucks. we did this last year without legislation. we just got all parties together and we got them to agree -- automakers, auto workers, environmental groups, industry. that means our cars will be getting better gas mileage, saving one. billion barrels of oil -- barrels of oil over the life of the program, 1.8 billion. our consumers will save money from fewer trips to the pump -- $3,000 on average over time it

will save because of these higher efficiency standards. our auto makers will build more innovative products. right now, there are cars rolling off the assembly lines in detroit with combustion engines, i am not talking about hybrids, combustion engines that get more than 50 miles per gallon. we know how to do it. we know how to make our cars more efficient. going forward, we will continue to work with the automakers, with the auto workers, with states, to ensure the high quality fuel-efficient cars and trucks of tomorrow are built right here in the u.s. that will be up top priority for us -- a top priority for us. [applause] this summer we will propose the first ever broke efficiency standards for heavy-duty trucks. this fall, we will announce the next round of appeals standards for cars that builds on what we have already done.

and by the way, the federal government is going to need to lead by example. the fleet of cars and trucks were used in the federal government is one of the largest in the country. we have got a lot of cars. and that is why we have already doubled the number of alternative vehicles in the federal fleet. and that is why today i am directing agencies to purchase 100% alternative fuel, hybrid, or electric vehicles by 2015. [applause] all of them should be alternative fuel. going forward, we will partner with private companies that want to upgrade their large fleets. and this means by the way that you students, as consumers or future consumers of cars, you have got to make sure that you are boosting demand for alternative vehicles.

you're going to have a responsibility as well, because if alternative fuel vehicles are manufactured by you guys are not buying them, folks will keep on making cars that do not have the same fuel efficiency. so you have power in this process, and the decision to make individually in your lives will say something about how serious we are when it comes to energy independence. we hve also made historic investments in high-speed rail and mass transit, because part of making our transportation sector cleaner and more efficient involves offering all americans, whether they are urban, suburban, or borough, the choice to be mobile without having to get in a car and pay for gas. still, there are few breakthroughs as promising for increasing fuel efficiency and reducing our dependence on oil

as electric vehicles. soon after i took office, i set a goal of having 1 million electric vehicles on our roads by 2015. we have created incentives for american companies to develop these vehicles and for americans who want them to buy them. so new manufacturing plants are opening over the next few years. a modest $2 billion investment in competitive grants to develop the next generation of batteries for these cars has jump started a big new american industry. pretty soon, america will be home to 40% of global manufacturing capacity for these events batteries. and for those of you were wondering what that means, the thing that has been holding back of electric vehicles is the battery that stores that electricity, that energy.

and the more efficient, the more light way we can make those batteries, the easy it is to manufacture those cars at a competitive price. and we can have that industry here in the united states of america, that means jobs. if those batteries are made here, the cars are made here. those cars are made here, we're putting americans back to work. to make sure we stay on this goal, we aren't going to need to do more by offering more powerful incentives to consumers and by rewarding the communities that pave the way for the adoption of these vehicles. one other thing. about electric cars. you do not need to talk to chu about this. electric cars run on electricity. electricity.